You will find that Gold is a sensitive subject for many people. They behave differently than they normally do around this topic. My friend Dr. Phil has me reading Beck’s work on Cognitive Behavior Therapy so I can continue learning about how we behave as humans and why. It’s amazing how I see it specifically in the market but also in the rest of the world every day. The Gold Market is no different. There’s definitely something there. If you’ve been in this business long enough, you’ve noticed how people act differently about this one specific investment. Even investors who don’t have positions in this rock still have an opinion on it and one that steers away from their traditional approach.
It’s fascinating and I’ve been studying this for many years. I’m lucky that some of my predecessors who ultimately turned into mentors of mine used to price stocks and other assets in Gold terms. When I was a lot younger, this really helped me think more logically with respect to money flow around the world. Those early lessons have helped to this day. I have Gold to thank for that. (you see how in my mind, I also have an personal history with gold?)
So what should we be doing? Is it time to be buying Gold or selling it? It’s a tough question to answer because I think you also have to take opportunity cost into account when you’re calculating the risk. This is something that I see being ignored way too often. In other words, What else could I be doing with this money if I didn’t invest it in a bunch of rocks?
For today’s purposes, let’s just look at Gold on its own merit. I hate drawing too many lines on charts but work with me on this one. It pains me too, I know. This is a weekly chart of Gold with a 14-week RSI plotted down below. I think we can all agree that the levels presented here have been relevant to the behavior of the market. Say what you will about how these levels are calculated, the fact that prices have reacted at these levels can’t be denied.
click on charts to zoom in
Also notice how momentum put in a bullish divergence at the late 2015 lows. That’s why I liked Gold so much in early 2016, particularly the miners. One thing I want to point out though, as you can see here, is that in 2016 Gold was breaking out vs a lot of other assets including Stocks, Bonds and Copper. The big asset breakouts came before Gold itself broke out.
Forgive me, but I want to add a few more lines here that can help make the bull case.
click on charts to zoom in
For us, our targets were hit last Summer in 2016. So I’ve been pretty neutral since then. But the rally in the first half of this year is something to take note of because it held those key levels I pointed out above. Do I think we can breakout and rip through 1450 and go straight back to 1900? No. I think this is going to be more of a process.
Here is a closer look. I tried drawing trendlines in every possible way. I still see trouble and not the best risk vs reward in the market right now. Of all the charts out there, is this the one you want to buy?
Here is the Gold Bugs Index that consists of the largest mining companies. I see it breaking out with the next target up near 300. That’s further reason not to be short of Gold
This is the chart that has my attention. A bullish divergence in momentum leading to a breakout in the Gold vs S&P500 ratio. If we can somehow stay above that downtrend line, it’s step 1 for a longer-term uptrend for sure. But it’s not going to happen overnight.
On the other hand, Gold is also breaking down vs Copper, not breakout out. If you’re going to invest in a rock, do you want to be the underperformer or outperformer?
Let’s take the Dollar out of the equation. Here is what Gold looks like priced in Japanese Yen. It looks a lot better doesn’t it? But it’s still not out of the woods. This was a great breakout from a solid base. There’s no question there. So yes, I do think this goes higher, probably a lot higher. But this is going to be a process, let’s remember that.
Even though I’ve had a more neutral stance in Gold this year there have been a few Gold and Silver stocks that I’ve liked that were showing relative strength compared with the others. These continue to do well and I think they go higher. [Premium Members see: Gold Workbook ]
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